2 Discover the new REVERSE MORTGAGE We recognize the trusted role you play in your clients financial security. Your knowledge and planning ensure each one of your clients has a viable and secure retirement portfolio. For many, the time has come to begin disbursement plans in a responsible and sustainable way. A reverse mortgage is something we want all retirement planning professionals to understand thoroughly. It has become one of the safest and smartest options for portfolio longevity and security. The new reverse mortgage has a variety of options and consumer protections in place to provide your clients with more confidence to stay retired. Springwater Capital promises you the most exhaustive, thoughtful and strategic reverse mortgage services available, at no cost to you. We look forward to helping you identify HECM strategies for your clients. What is a reverse mortgage? A reverse mortgage is a way for borrowers age 62 or older to unlock the equity in their home by turning it into tax-free cash without the borrower needing to make monthly mortgage payments. How would a reverse mortgage help your client with their retirement portfolio? A reverse mortgage provides a potentially inexpensive, easy-to-qualify, tax-free, liquid cash reserve for various uses. 2

3 HOW CAN A REVERSE MORTGAGE BE USED FOR RETIREMENT SECURITY? Replace cash reserves Delay Social Security and pension payouts Tax-free loan proceeds may reduce tax liability Postpone drawing down retirement assets, giving assets more time to grow. Cover large unexpected expenses such as medical bills or home modifications. Eliminate existing mortgage for clients who still have a traditional mortgage balance Finance a new residence through the HECM for Purchase product. Also, a reverse mortgage does not affect traditional governmental retirement benefits, such as Social Security and Medicare. How much does a reverse mortgage cost? Many of the same costs associated with a regular mortgage apply to reverse mortgages. Clients will be charged an origination fee, a mortgage insurance premium (MIP), an appraisal fee and standard closing costs. In most cases, these fees and costs are capped and may be financed using the proceeds of the reverse mortgage. What are the qualifications? The youngest borrower on title must be 62 years of age or older. The home must be the borrower s primary residence. The home equity must exceed 40% in most cases, depending on the borrower s age. What are some challenges associated with this loan? A reverse mortgage is a home loan, so advisors may need to confront debt-adverse clients about creating debt against a debt-free asset. Advisors may also have to work with family members who don t want their inheritance diminished. 3

4 THE BIG PICTURE Home equity is another tool to help clients reach their goals during retirement planning. SIX MAJOR PORTFOLIO SURVIVAL RISKS: 1. Less Structured Assistance Diminished roles of benefit plans from both the government and the workplace. 2. Market Volatility The market has experienced greatly varying annual return over the last 30 years. 3. Inflation Based on historical average inflation rates, if your client requires $50,000 to maintain their present lifestyle, they will need over $131,000 in 25 years just to keep pace. 4. Longevity One member of a 65-year old couple today has a 50% chance of living to age 92 and a 25% chance of living to age Taxes The top marginal tax bracket for many retirees in 2011 was 35%, so minimizing tax burden can help stretch savings. DEMOGRAPHIC STATISTICS: Ameriprise Survey 47% of respondents plan to use home equity to help fund their retirement. Boston College Center for Retirement Research 74% of retirees will fall short of their income needs at 62 years old. 47% 74% Pew Research Center Between 2002 and 2011, the percentage of adults that said they will not have enough money to live comfortably in retirement rose from 32% to 53%. Among adults 55 to 64 years old, the percentage who said they were not too confident or not at all confident that they will have enough to live on in retirement rose from 26% in 2009 to 39% in Health Care Approximately 70% of Americans age 65 or older will need some type of long-term care, and the costs are rising faster than inflation. Reverse mortgages aren t just for people struggling to keep their homes. Reverse mortgages can also work for financially comfortable retirees looking for additional retirement security in order to avoid selling other portfolio assets at the wrong time or under duress. 4

5 MEET STEVEN AGE 62 STATUS Retired HOME VALUE $350K (no mortgage) CURRENT PORTFOLIO $600K DESIRED WITHDRAWAL RATE 5% NEEDS PORTFOLIO TO LAST 30+ years DISTRIBUTION GOAL Maintain short-term liquidity and mitigate need to access longterm investment portfolio during bear markets PORTFOLIO SURVIVABILITY 67.5% Steven is a recent retiree who is looking forward to enjoying the fruits of his labor. Steven worked closely with his advisor to grow his nest egg, but his portfolio took a $117,000 hit during the Great Recession, which according to *Ameriprise, is on par with the average amount other Baby Boomer s lost. Thanks to his advisor, he s back on track, but he understands that the loss will impact his quality of life during retirement. Knowing this, Steven wants to have an intelligent plan in place to make sure his money lasts at least 30 years, especially if the market turns volatile again. Applied strategically, a reverse mortgage can significantly increase the probability that Steven s portfolio will last. HERE S HOW Using **Monte Carlo simulations, Steven s current $600,000 portfolio with a 5% withdrawal rate over 30 years only has a 67.5% chance of survival. Making up a $100K+ loss is not an easy feat. By utilizing a reverse mortgage, Steven is able to affordably access his equity to replace his portfolio loss without having to meet stringent qualification criteria. By comparison, if Steven were to leverage his home with a reverse mortgage and only replace the $117,000 loss from the Great Recession, his more robust $717,000 portfolio with a 5% withdrawal rate over 30 years has an 85% chance of survival. That s a 17.5% increase in the chances of portfolio survivability when just considering replacing losses. This is just one of many ways a reverse mortgage can help your client s portfolio provide a sustainable and secure retirement. FIND OUT MORE BY CONTACTING US TODAY. *Source: Retirement Derailers survey released by Ameriprise Financial in February Koski research interviewed 1,000 working Americans ages with at least $100,000 in investable assets. **Monte Carlo simulation method produces a range of estimated portfolio outcomes an investor may experience over a designated period. Monte Carlo is not offered as a tool for forecasting market performance or determining a sustainable withdrawal rate during retirement. It does not reflect historical returns of any portfolio mix or asset class, and should not serve as a guide or substitute for ongoing management of wealth during retirement. 5

6 MEET BARBARA AGE 62 STATUS Retired HOME VALUE $500K (no mortgage) CURRENT PORTFOLIO $500K PENSION None Barbara is a recent retiree who is trying to decide the proper time to take her Social Security benefits. Based on her goals, her projected living expenses are $60,000 per year. If she pulls that much from her current investment portfolio year after year, she ll deplete her funds well short of her goal to make it last 30 years and she doesn t have a pension to help make up the difference. Barbara believes that drawing upon Social Security is her only option. After meeting with her advisor, she learns that in order to make the most of Social Security benefits, she should wait until age 70 in order to collect the highest amount. By utilizing a reverse mortgage to supplement her retirement income during the eight-year deferral period, Barbara can ensure that she receives maximum benefits without having to drain her investment portfolio to reach her goals. Scenario 1 and 2 Client Portfolio Input Parameters: The initial value of the retiree s account --60/40 securities portfolio Equities 60% Fixed Income 40% Calculations of investment gain/loss and of retirement income withdrawal are performed each year in a 30-year period. Identical variables in all simulations: Initial withdrawal rate Investment performance (average investment return based on data from ) Rate of inflation Amount drawn by the retiree Differing variables in all simulations: Sequence of investment returns (randomly selected) Strategies used to determine whether retirement income is withdrawn from the account and/or the reverse mortgage credit line In the course of the calculations, the cash flow either survived 30 years or it did not (the two most significant determinants of cash flow survival are the initial withdrawal rate and whether the higher investment earning years occur early or late in the 30-year sequence). 6

7 Ways to use a REVERSE MORTGAGE The Journal of Financial Planning has outlined various strategies to effectively use a reverse mortgage to help retirement funds survive: PASSIVE STRATEGY Reverse-Mortgage-Last Strategy A reverse mortgage is established when the client is in financial trouble. This usually means that the portfolio funds have been depleted, high-value assets have been sold to make ends meet, and leveraging the home equity is the last remaining option. ACTIVE STRATEGY Reverse-Mortgage-First Strategy A reverse mortgage is established at the outset of retirement and drawn upon every year to provide retirement income until exhausted, allowing the client s portfolio more time to grow. Subsequent withdrawals are then made from the portfolio. Coordinated Strategy A reverse mortgage is established at the outset of retirement but only drawn upon if the portfolio under performs. The need to use the reverse mortgage funds is determined yearly based upon investment performance, which spares the portfolio any drain when it is down, giving it a better chance to recover. Using these active strategies, the cash reserves are made available up front and incorporated into a plan, giving your portfolio the maximum amount of time to grow and the best possible chance of survival. You can still live in your home without making monthly mortgage payments, feel confident about being financially prepared for emergencies, and maintain your desired quality of life. Simple and effective. CALL US TODAY TO LEARN HOW A REVERSE MORTGAGE CAN PROVIDE REAL RETIREMENT SECURITY FOR YOUR CLIENTS. Reverse mortgages do have a place in mainstream retirement distribution planning, and have a significant impact on the probability that some clients will be able to meet their predetermined retirement goals. The Journal of Financial Planning, Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions by John Salter, Ph.D., CFP, AIFA; Shaun Pfeiffer; and Harold Evensky, CFP, AIF 7

8 SPRINGWATER C APITAL FIND OUT HOW A REVERSE MORTGAGE CAN PROVIDE YOUR CLIENT WITH A MORE SECURE RETIREMENT TODAY. CALL US FOR MORE INFORMATION springwaterc.com

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